The Phillips Curve: Read the Fine Print

The Phillips Curve: Read the Fine Print

12/14/2021Robert Aro

The Federal Reserve’s Dual Mandate is the Phillips Curve.

It’s not that the Fed is charged with the impossible task of reaching a state of 2% inflation and full employment; rather, the Fed is trying to obtain these two goals, believing (according to the Phillips Curve), these goals come as a trade-off needing to be managed.

Just two weeks ago, Chair Powell spoke of this on-going battle, like a never-ending tug of war between inflation and employment, as reported by Reuters:

We have to balance those two goals when they are in tension, as they are right now.

This tension, as described by Powell, is not just another Powell-ism, or something the head of America’s central bank said off the cuff in an interview. Instead, this idea of balancing inflation against employment has been a widely discussed phenomena in academia and by central bankers for several generations. The current CEO of the Federal Reserve Bank of New York, a man who may be more powerful than Powell himself, co-authored a paper in 2014 explaining the trade-off, calling it the “divine coincidence of monetary policy,” whereby:

…the central bank can simultaneously stabilize both employment and inflation by altering a single policy instrument—the short-term nominal interest rate.

According to one of the current members of the inner circle at the Fed, just by changing interest rates, employment and inflation will simultaneously stabilize.

The above quotes are only two examples. But countless instances exist where economic planners discuss the necessity of balancing the two objectives, as if it’s a zero-sum game.

To best illustrate the juggling act, the St. Louis Federal Reserve Bank explains the Phillips Curve, or the belief there is a trade-off between inflation and unemployment:

According to economic planners, human behavior can be plotted on a simple chart. The higher the inflation, the more people will work. The lower the inflation, the less people will work. If the theory is sound, then a country like Turkey, with an annual inflation rate of 21.3% should be struggling with employment that is too high, instead of struggling with bread lines.

Unfortunately, Curve supporters may retort, with the highly untenable position, that the model doesn’t work in some countries, like it works here….

But there is always the fine print to consider. In the model presented by the St. Louis Fed above, a tiny asterisk at the bottom of the chart reads:

This illustration is intended for conceptual purposes only. It's partly modeled on Figure 1 scatterplot on Page 285 of Phillips’ 1958 paper, which contained 1861-1913 data. Each dot represents a year. The vertical axis shows the average rate of change of money wage rates; the horizontal shows the average unemployment.

This is Figure 1 from the original paper:

Phillips’ paper became the cornerstone of monetary policy for the entire world. Central bankers to this day look to balance both inflation against unemployment in harmonious equilibrium. Written in 1958, he used data from the United Kingdom that pre-dated the abolition of the slavery! However, it’s time to acknowledge that these ideas have long since outlived their usefulness and are now used to conduct economic harm above all else.

For argument's sake, even if the UK data from 1861 was reliable, showing a correlation between wage rates and unemployment, and even if the correlation equaled causation and all assumptions used in the paper (like an “increase in productivity of 2 per cent per year,” or after “Ignoring years in which import prices rise rapidly enough to initiate a wage-price spiral”), were all considered true, the question becomes: Why would this be relevant to America today?

The problem of measurement uncertainty and errors are one thing. But even if the data was adequately measured, there’s no plausible reason to think this has any sort of predictability or relevant application in the future. If the relationship existed for the last 50 years, there’s no reason the relationship should exist next year.

To make matters worse, looking at the last 50 years of inflation vs. unemployment is more than sufficient to see no such relationship exists. The St. Louis Fed, calls it the Cloud of Points:

For all the talk of quantitative economists and the use of data as an economic tool, apparently no one at the Fed has ever run a correlation coefficient or R-Square to see if there still is, or ever was, a relationship between the two.

But here we are, sadly. And 2022 is starting to look interesting. America is experiencing the highest rates of inflation in several decades. The expansion of the money supply, national debt and the Fed’s balance sheet continue to garner little to no attention. At some point in the not too distant future, should Chair Powell announce they are raising rates to fight inflation, he’ll cite how it worked in the past and claim the data supports the decision. While no one likes being lied to, at least it feels better to know you are being lied to, as opposed to thinking any of their policies are backed by credible economic theory. 

Milei Exposes the Path of Destruction of the West

02/20/2024Daniel Lacalle

Big corporations and global leaders adhere to and assume the growing interventionism and the advance of socialism because, for politicians, it is an excellent way of perpetuating their power and control over citizens, while multinationals tolerate it because they have enough financial muscle and size to absorb the pernicious effects of the massive rise in public debt and monetary imbalances, public spending, taxes, barriers to trade, and progress.

They all know that the burden of interventionism falls entirely on small businesses and families, destroying the middle class in the process. The wealthy can escape the negative impact of monetary debasement and confiscatory taxes. People with salaries and small entrepreneurs cannot.

Who suffers the constant erosion of real disposable income from those gigantic and wrongly called government “stimulus plans” that never stimulate anything but bureaucracy, leaving a massive trail of debt and impoverishment caused by increased inflation and ever-increasing taxes? The middle classes and small businesses.

Why do global leaders accept a rising trend in destructive policies that they know will fail? There is a perverse incentive. Business leaders who should value the success of productive investment and free markets are afraid that the interventionist cancelling crowd will attack them and, therefore, prefer to look elsewhere or even finance the advance of anti-freedom ideas in the hope that the mob will let them work and invest in peace. Others believe they may keep their market share and avoid the threat of competition if they stay close to political powers. It doesn’t work. They do not leave them alone, and leaders lose more than they gain when they fall for cronyism. Whitewashing Marxist collectivism does not stop it. It is no surprise to see how this neocommunism disguised as social justice attacks with even greater cruelty those companies and leaders who embrace their false messages. Just like wokeism often cancels and destroys its most staunch defenders, Neomarxism does the same with corporations and business owners because its objective is full control.

The West is in danger, and Javier Milei explained this in detail at Davos, crushing the consensus narrative. “It should never be forgotten that socialism is always and everywhere an impoverishing phenomenon that has failed in all countries where it’s been tried out. It’s been a failure economically, socially, and culturally, and it has also murdered over 100 million human beings, he said. However, the most important point of his speech for me is to remind people what socialism is. “I know, to many, it may sound ridiculous to suggest that the West has turned to socialism, but it’s only ridiculous if you limit yourself to the traditional economic definition of socialism, which says that it’s an economic system where the state owns the means of production. This definition, in my view, should be updated considering current circumstances.

Today, states don’t need to directly control the means of production to control every aspect of the lives of individuals. With tools such as printing money, debt, subsidies, controlling the interest rate, price controls, and regulations to correct so-called market failures, they can control the lives and fates of millions of individuals. This is how we come to the point where, by using different names or guises, a good deal of the generally accepted ideologies in most Western countries are collectivist variants, whether they proclaim to be openly communist, fascist, socialist, social democrats, national socialists, Christian democrats, neo-Keynesians, progressives, populists, nationalists, or globalists. Ultimately, there are no major differences. They all say that the state should steer all aspects of the lives of individuals. They all defend a model contrary to the one that led humanity to the most spectacular progress in its history.” This is critical because the average citizen has been led to believe that massive money printing, piles of new regulations and laws, rising public debt, and constant interest rate interventions are capitalist or neoliberal policies, when they are tools of statism to accelerate the rising size of government in the economy. Socialism does not seek progress; it seeks control. Large companies that fall into the trap of buying socialism suffer the same attack and further deteriorate their ability to create value and wealth.

Milei destroyed all the current myths in one speech at Davos, and millions watched in awe because it was obvious that he was telling the truth. And that, coming from Argentina, he knows what he is talking about. When one speaks with Argentine citizens, they often remind us all that they “come from the future.”.

The example of Argentina is obvious. Between 2007 and December 2023, the world looked to the other side in the face of a massive increase in poverty and inflation. They even had the audacity to justify that inflation was due to exogenous factors, not massive money printing, and that poverty was miscalculated, exculpating socialist governments from any responsibility.

The left’s shocking silence in the face of the humanitarian and ecological disasters created by the Socialism of the XXI Century governments in Venezuela, Nicaragua, Argentina, and other countries shows that they could not care less about the welfare of citizens or the protection of the environment but used seemingly harmless causes to take power and destroy the economy. Why? Because the goal of any socialist leader is to create poor hostage clients who depend on a state in which those leaders become obscenely rich as the country goes down. Do not be mistaken; statism does not seek the redistribution of wealth from the rich to the poor, but the accumulation of the wealth of the nation in the hands of a few politicians.

Thankfully, Davos Milei was an undeniable success, and this shows that not all is lost. According to the World Economic Forum page, ten times more people watched his speech than all other leaders combined. Socialist leaders like Spain’s Sanchez bombed with less than 5,000 views. No, businesses do not depend on the state. There is no welfare state without powerful and productive enterprises, and there are no public services if private wealth is not created. There is no public sector without a thriving private sector. Progress does not depend on a crony, extractive, and confiscatory state but on a strong civil society of free individuals with independent institutions that act as a counterweight to political power. Legal certainty and investor attractiveness, or respect for international law, do not happen due to the generosity of political leaders, but thanks to free markets and independent institutions that limit political power. The world does not progress due to big governments, but despite the obstacles they put in place,

Milei crushed it by telling the truth. Those who remained silent for years about Argentina’s economic ruin now fear him.

Socialism is an impoverishing system that has failed and should not be defended out of fear of retaliation.

Milei reminded companies that they are the heroes of poverty reduction and progress and that the left only uses environmental and gender excuses to impose totalitarianism.

Milei reminded everyone at Davos that Argentina’s ruin is not a coincidence or a fatality, but the result of years of implementing the same interventionist policies that many at Davos have defended or tolerated.

What We Can Learn From Putin

Vladimir Putin isn’t a hero, but his interview with Tucker Carlson brings out some basic truths that we would do well to consider. In contrast to brain dead Biden and his gang of neocon controllers, Putin isn’t dominated by an ideological vision that requires world hegemony. He is a nationalist who aims to advance the interest of Russia. This enables him to have a realistic perception of world politics. In what follows, I’ll discuss some of the vital points we can learn from him.

Some people don’t want us to learn these lessons. As usual, the great Dr. Ron Paul is on top of this. Right after the interview, the mainstream media attacked it. They don’t want you to know that there is another side to their propaganda. Dr. Paul says:

“There has been much written and said about Tucker Carlson’s interview with Russian President Vladimir Putin last week. As of this writing the video on Twitter alone has been viewed nearly 200 million times, making it likely the most-viewed news event in history. Many millions of viewers who may not have had access to the other side of the story were informed that the Russia/Ukraine military conflict did not begin in 2022, as the mainstream media continuously reports, but in fact began eight years earlier with a US-backed coup in Ukraine. The US media does not report this because they don’t want Americans to begin questioning our interventionist foreign policy. They don’t want Americans to see that our government meddling in the affairs of other countries – whether by “color revolution,” sanctions, or bombs – has real and deadly consequences to those on the receiving end of our foreign policy.

To me, however, perhaps the most interesting aspect of the Tucker Carlson interview with Putin was the US mainstream media reaction. As Putin himself said during the interview, “in the world of propaganda, it’s very difficult to defeat the United States.” Even a casual look at the US mainstream media’s reporting before and after the interview would show how correct he is about that. In the days and weeks before the interview, the US media was filled with stories about how horrible it was that Tucker Carlson was interviewing the Russian president. There was the danger, they all said, that Putin might spread “disinformation.”

That Putin might say something to put his country in a better light was, they were saying, reason enough to not interview him. With that logic, why have journalism at all? Everyone interviewed by journalists – certainly every world leader – will attempt to paint a rosy picture. The job of a journalist in a free society should be to do the reporting and let the people decide. But somehow that has been lost. These days the mainstream media tells you what to think and you better not dispute it or you will be cancelled!

What the US mainstream media was really worried about was that the “other side of the story” might start to ring true with the public. So they attacked the messenger.

The CNN reporting on Tucker’s interview pretty much sums up the reaction across the board of the US mainstream media. Their headline read, “Tucker Carlson is in Russia to interview Putin. He’s already doing the bidding of the Kremlin.”

By merely doing what used to be called “journalism” – interviewing and reporting on people and events, whether good or bad – one is “doing the bidding” of the subject of the interview or report?

No wonder fellow journalist Julian Assange has been locked away in a gulag for so many years. He dared to assume that in a free society, being a journalist means reporting the good, the bad, and the ugly even if it puts those in power in a bad light.

Read the full article at 

Protect the First Amendment: Impeach Joe Biden!

02/20/2024Ron Paul

Protecting democracy and the Constitution from Donald Trump and the “MAGA extremists” is a major theme of President Biden’s reelection campaign. As is often the case in American politics, President Biden is just as, if not more, guilty of posing an “existential threat” to the Constitution as those he smears as “extremists.” For example, President Biden and members of his administration have waged a campaign to undermine the First Amendment by “encouraging” companies to suppress the expression of “unapproved” views online.

The latest example of the administration trying to get a private internet company to censor Americans may be the most outrageous of all. House Judiciary Committee Chairman Jim Jordan recently released a series of emails between Biden administration officials and Amazon, the world’s largest online retailer. The government officials wanted Amazon to remove from its online catalog books containing “misinformation” regarding the safety and effectiveness of covid vaccines, meaning anything questioning the government’s pro-vaccine propaganda.

While Amazon did try to push back some against the administration, it did remove at least one “anti-vaccine” book from its online catalog. Amazon also manipulated its search results to make sure books expressing skepticism of vaccines were buried under books touting the pro-vaccine line. The company probably hoped that by “burying” these “dissident” books Amazon could make the administration happy without actually removing all books that question the covid vaccines. The company also promised the administration that it would expand use of a Centers for Disease Control (CDC) warning for books promoting “anti-vaccine” narratives.

Some libertarians say that Amazon should not be criticized for its decisions. These libertarians point out that, as a private company, Amazon has the right to decide what books to sell and also has the right to decide to make it difficult to find books expressing viewpoints the company finds dangerous or distasteful. This is true but ignores one important fact: Amazon’s decision to suppress books critical of covid vaccines was not done to attract consumers who would not shop at a site that sells “anti-vaccine propaganda” or “conspiracy theories.” Instead, Amazon acted at the behest of government officials who were seeking to prohibit Americans from accessing alternative views.

Amazon may have been eager to cooperate with the government to avoid being subjected to antitrust litigation. At the very time the administration was demanding Amazon suppress covid dissidents, President Biden was preparing to appoint Lina Khan, an advocate for antitrust litigation against Amazon, to lead the Federal Trade Commission.

It is clear that the US government has been a major spreader of covid disinformation, while those challenging the government’s pro-mask, pro-vax, and pro-lockdown propaganda have been the truth-tellers. Covid is an example of why protecting the First Amendment is vital to protecting not just liberty, but also our prosperity and health.

Congress should prioritize its investigation into the Biden administration’s efforts to silence Americans because of their views. Congress should then impeach all high-level federal officials, including President Biden, who took action to violate Americans’ First Amendment rights.

Three Risks to the Inflation Narrative

02/19/2024Daniel Lacalle

Market expectations of rapid disinflation and a soft landing remain, but January has given a few new risks to the optimistic estimates of disinflation with no impact on the economy.

The first risk comes from the commodity complex and freight costs. Market participants have all but ignored the spread of geopolitical risk and assumed the extraordinary and counterintuitive decline in commodity prices in 2023 as something permanent. However, January has shocked analysts with a dramatic increase in freight costs and a significant bounce in oil prices. Furthermore, the December inflation figures in the eurozone proved that the base effect was an uncomfortably large driver of the consumer price index annual decline in November. In fact, all the components published by Eurostat in the December advance came significantly above the European Central Bank target.

The second risk comes from the significant bounce in net liquidity and effective money supply both in the United States and the euro area. Thus, the following three months will be critical to understanding the real disinflation process and whether market estimates are too optimistic. Unless the money supply declines again, the path to reaching 2% inflation may be challenging. The FOMC minutes came as a surprise to many when, like the ECB, members maintained their commitment to wait and see more than implementing immediate rate cuts.

We have been discussing too much about rate cuts and too little about net liquidity, sometimes forgetting that rising net liquidity has driven markets higher in the fourth quarter, and the first quarter will likely be more challenging considering the estimated volatility in the reverse repo figures. Additionally, massive deficit spending by the U.S. government may keep inflationary pressures above the level that broad and base money reductions would suggest.

The third risk comes from the inflationary impact of government protectionism. As trade barriers continue to build, the monetary disinflation process may be decelerating due to governments implementing trade wars, barriers to commerce, and tariffs. Unfortunately, governments in the euro area and the United States are tightening protectionist measures disguised sometimes as “environmental policies,” making competition more challenging and prices of food and shelter more expensive, by slashing access to land and farming as well as limiting building projects. Interventionism and trade wars make goods and services more expensive for citizens by placing a floor on prices even when monetary aggregates decline.

Food, commodities, and real estate inflation are all monetary effects. More units of newly created currency are going to relatively scarce assets. At the same time, deficit spending and the rising weight of government in the economy reduce the positive effects of monetary contraction and certainly decelerate the disinflation process. However, all those negative effects combined also contribute to the risk of a hard landing, especially when the U.S. and Europe are already in a private sector recession.

We need to be careful with excessive optimism about inflation and even more aware of the perils of expecting disinflation with no economic harm. Many market participants are suddenly surprised that January has started with a negative trend, but this is explained by the excessive expectations of aggressive and immediate rate cuts.

Biden Runs Interference on "Shrinkflation" in Super Bowl Ad

02/16/2024Weimin Chen

President Joe Biden made an appearance in a White House advertisement during this year’s Super Bowl. He put one of the biggest problems facing the country—inflation—front and center for the largest broadcast audience since the 1969 Moon landing. Yet, he deflected responsibility for it entirely. A leader with integrity could be expected to level with the general public about the consequences of prior decisions made, but that’s not the style of U.S. leadership, unfortunately. Shifting blame to someone else is the name of the game and the politicians continue to play America.

In the ad, the President called attention to a phenomenon known as “shrinkflation.” It refers to manufacturers changing their products while trying to maintain relatively stable prices on the shelves rather than just raising prices, which would be too obvious to consumers. Some approaches include cutting down the amount of food contained in the same package, producing the product with cheaper ingredients, or cutting corners in other ways that consumers may not immediately notice—all while keeping prices the same or only slightly higher. Another term, “skimpflation,” refers to the method of keeping the volume or weight of a product the same, but changing the proportions of different ingredients contained within, such as using a starchy filler over protein in a canned soup. 

As he squinted into the camera, Biden spoke casually to the audience, saying:

It’s Super Bowl Sunday – if you’re anything like me, you like to be surrounded by a snack or two while watching the big game. You know, when buying snacks for the game, you might’ve noticed one thing, sports drinks bottles are smaller, bag of chips has fewer chips, but they’re still charging us just as much. As an ice cream lover, what makes me the most angry is that ice cream cartons have actually shrunk in size, but not in price. I’ve had enough of what they call “shrinkflation.” It’s a rip-off. Some companies are trying to pull a fast one by shrinking their products little by little and hoping you won’t notice. Give me a break. The American public is tired of getting played for suckers. I’m calling on companies to put a stop to this. Let’s make sure businesses do the right thing now.

Biden made the classic politician’s play in calling out shrinkflation. Of course, it’s the immoral greed of the snack companies that is to blame for you paying more for less! It’s not right that big businesses are pulling the wool over your eyes as you shop for tasty treats! On game day no less!

Senator Elizabeth Warren made the same cry of outrage a couple of weeks ago on X when she said:

Fewer Doritos in your bag.

Fewer Oreos in your box.

Less toilet paper on your roll.

You aren’t imagining it—big corporations really are making you pay the same amount (sometimes more) for less. It’s called “shrinkflation,” and we’ve got to crack down on it.

Warren reiterates the adolescent notion that consumers have a right to the myriad of products on the shelves and nobody can “make them” pay more for less. No one is forcing consumers to buy Doritos. But it's the government that does force you to act against your will. It forces people to pay taxes on special interests and foreign interventions on top of juicing the money supply to service its out-of-control spending.

In a twisted hint to the prudent viewer, the President even wore a small pin in the ad with the American and Ukranian flags joined together—a nod to the many rounds of spending packages that the government has approved for the war in Eastern Europe. That is why Americans are losing the purchasing power of their money. That is the real root of so-called ‘shrinkflation.’

If the producers of snacks and household items that everyday Americans buy simply raised prices on stocked goods, it would likely hurt the current administration’s image. By going the “shrinkflation” route, companies are actually masking the damage that has been done to the U.S. economy by Washington. The impact of gas prices on public sentiment toward the U.S. president is a well-known dynamic. 

Businesses would prefer to keep prices the same for a given quantity and quality of their products so that consumers continue to buy from them so that they can continue to make a profit and stay in business. If they can’t make it work, they go out of business, the product disappears from shelves, and the jobs go away.

In a free market, prices should fall as businesses and entrepreneurs sharpen efficiencies and provide better products. When the state spends money through debt, the central bank increasingly resorts to counterfeiting by creating new money to pay for it. A recent Congressional Budget Office projection estimates that U.S. debt will reach $54 trillion in the next decade. Under such conditions, everyone—including businesses—must adapt to the falling value in the currency and it will become increasingly difficult to do so.

Ironically, the president correctly stated that “the American public is tired of getting played for suckers.” But the real immoral greed is that of the political class and Biden was there to run interference for it on Superbowl Sunday.

Secretary Yellen's Dream Date

02/16/2024Douglas French

Bloomberg reports that Treasury Secretary Janet Yellen’s pick for a dream date lunch would be none other than John Maynard Keynes, who Bloomie reporter Christopher Condon describes as “the founding father of modern macroeconomics.” I thought John Law held that title. 

This pronouncement happened during a speed round of questions in Detroit while chatting with Michigan Governor Gretchen Whitmer. “I would choose John Maynard Keynes,” said Yellen. Keynes “changed the way all of us understand business cycles, public policy and financial markets.”

Murray Rothbard referred to Keynes in his History of Economic Thought class class as simply “Maynard.” In his Forward to Henry Hazlitt’s The Failure Of The ‘New Economics’, What Yellen reveres so much, Rothbard called a “Keynesian holocaust” in his Forward to Henry Hazlitt’s The Failure Of The ‘New Economics’. Yes, there's been bubbles, busts and inflation ever since. About Keynes, the man, Yellen’s dream date, Rothbard wrote, 

John Maynard Keynes, the man — his character, his writings, and his actions throughout life — was composed of three guiding and interacting elements. The first was his overweening egotism, which assured him that he could handle all intellectual problems quickly and accurately and led him to scorn any general principles that might curb his unbridled ego. The second was his strong sense that he was born into, and destined to be a leader of, Great Britain’s ruling elite. Both of these traits led Keynes to deal with people as well as nations from a self-perceived position of power and dominance. The third element was his deep hatred and contempt for the values and virtues of the bourgeoisie, for conventional morality, for savings and thrift , and for the basic institutions of family life.

There “is really a bipartisan understanding that he really hit deep insights into how economies work,” the Treasury chief said. Macroeconomics “as a distinct discipline began with Keynes’s masterpiece, The General Theory of Employment, Interest and Money, in 1936,” according to an International Monetary Fund note.

Rothbard in his Forward to Hazlitt’s critique of Keynesianism, wrote that Hazlitt “in this vitally important and desperately needed book throws down the challenge in a detailed, thoroughgoing refutation of the General Theory.” 

The General Theory was anything but a masterpiece. As Hazlitt explained,

Now though I have analyzed Keynes’s General Theory in the following pages theorem by theorem, chapter by chapter, and sometimes even sentence by sentence, to what to some readers may appear a tedious length, I have been unable to find in it a single important doctrine that is both true and original. What is original in the book is not true; and what is true is not original. In fact, as we shall find, even much that is fallacious in the book is not original, but can be found in a score of previous writers.

During her gushing the Treasury Secretary noted that President Richard Nixon famously said in the 1970s “we’re all Keynesians now.”

Not all of us.

Pre-order the 4th Expanded Edition of Early Speculative Bubbles & Increases In The Supply of Money today. 

Jesús Huerta de Soto's Commentary on Javier Milei's Davos Speech

This video is an  English translation of Jesús Huerta de Soto's comments about President Javier Milei's address at Davos. This lecture was recorded during a session of the Master of Austrian Economics program at King Juan Carlos University:

Professor Huerta de Soto examines Javier Milei's speech in Davos

The Problem with the Arbitrary Line between Legal and Illegal Immigration

02/14/2024Ryan McMaken

For at least twenty years, the term "illegal alien" (or similar variations like "illegal immigrant") has been the subject of a contentious debate between pro-immigation and anti-immigration activists. Over the past decade, the Left has increasingly managed to limit the use of the term "illegal" to refer to any migrant. For example, until fairly recently, the Associated Press was still using the term "illegal immigrant," but as Foreign Policy magazine notes, under "pressure from immigration advocates, the Associated Press update[d] its stylebook" to change the term in 2013. Other media organizations have followed suit. Nonetheless, some government organizations occasionally continued to use the term "illegal alien" until 2021 when the Biden administration instructed the US executive branch to abandon the term "alien" altogether. "Illegal alien" is on its last leg.

The disagreement between Left and Right is largely over how to portray the immigrants themselves. The Left seeks to banish the term "illegal" so as to normalize undocumented migration and increase it in general. The Right, on the other hand, seeks to portray undocumented immigration as nefarious in order to further restrict overall immigration. 

For the sake of argument, however, let's say that we are agnostic on the matter of whether immigration should be increased or decreased. 

So let's ask: is the term "illegal immigrant" useful? The answer is: "it depends." Moreover, the designations of legal and illegal do little to tell us about the productivity of a migrant, or the demands he or she makes of the welfare state. In practice, legal immigrants have greater access to public funds than illegal immigrants, and it shows. 

How Bureaucrats Arbitrarily Decide What is Legal

The core of the problem lies in the fact that the designations of legal and illegal are not rooted in market transactions or voluntary exchange. Rather, the designations rely primarily on arbitrary bureaucratic criteria. For example: Congress has declared that if immigrant X has filled out the appropriate approved paperwork and has been given the green light by some federal agent, he is thus legal. Congress has also declared that if immigrant Y's paperwork does not receive the necessary rubber stamp from some bureaucrat, he is not legal. In this latter case, private employers are not legally permitted to hire the worker regardless of the worker's skills or the employers needs. Even for those specific "illegal" immigrants who have been offered jobs and lodging in the private sector—and can pay their own bills—the lack of proper government paperwork precludes these potential workers from peaceful exchanges with employers and others.  

We can see the arbitrariness of this sort of thing in a number of other examples. 

One example is the minimum wage: the government has declared that an employer cannot enter into a contract with employees at a wage level under the minimum wage. Thus, employment at or above the minimum wage is "legal." Employment below that level is "illegal." The contract remains illegal even if both parties are willing. Thus, the line between legal and illegal in this case is totally arbitrary and based on mothing more than the central-planning impulses of federal lawmakers. 

We see a similar phenomenon in relation to drugs. At the federal level, Viagra is legal because Congress says so, and marijuana is illegal because Congress has decreed it. There’s certainly no objective standard determining why the federal government grants private citizens the freedom to choose one but not the other. There’s no clear difference between the two in terms of long-term health risks. In fact, Viagra is likely a bigger risk than marijuana. 

A final example can be found in the idea in the lockdowns that governments imposed on businesses and households during the covid panics of 2020. At that time, the government arbitrarily defined some businesses as essential while other businesses were deemed non-essential. In some jurisdictions, those workers deemed non-essential were even told to not leave their homes or risk prosecution. Thus, there were "legal" businesses and "illegal" businesses. This distinction was purely arbitrary, of course, and reflected nothing more than the biases of politicians and health officials. 

In all four examples, the only real difference at work here is that a legislator or bureaucrat has decided that one drug/immigrant/employee/business fits a government-defined standard while another drug/immigrant/employee/business does not. 

Nonetheless, the distinction between legal and illegal is relevant in the context of law and public policy. Obviously, when an employee and an employer agree the employer will pay the employee less than the government's minimum wage, that can bring serious penalties. The same is true of using illegal drugs or hiring illegal immigrants. In all cases, the state has the de facto power to prosecute and sanction those who run afoul of the regime's arbitrary decrees. The regime violates property rights when it prosecutes people for these peaceful activities, of course, but states have never much troubled themselves about violating property rights. 

The use of the terms "legal" and "illegal" in these contexts also serve a rhetorical purpose. They tell us that government policymakers like the legal thing, and don't like the illegal thing. Skeptics of the state's "wisdom," however, have long understood that governments have never been reliable arbiters on what is good, moral, proper, or healthy. The legal status of an activity or person or product has never been a definitive criterion on which to base an opinion about much of anything. 

Using Legal Status to Expand the Welfare State

The arbitrariness of the legal/illegal distinction in immigration cuts both ways.

It's true that the designation of "illegal" can be used to reduce immigration by cutting off access to the legal marketplace for immigrants without the proper government approval.  On the other hand, the designation of "legal" can be used to expand taxpayer-funded subsidies. Contrary to the widely-held belief that legal immigrants are productive and illegal immigrants are unproductive, the reality is that legal immigration tends to be a larger overall drain on taxpayer resources that illegal immigrants. This is partly because there are more legal immigrants than illegal. But it's also true because most legal immigrants have more access to the American welfare state than do illegal immigrants. Moreover, many legal immigrants avail themselves of the many generous American safety-net programs.  

Indeed, a label of "legal" can often be applied to unproductive immigrants who take advantage of welfare programs and who may not even work for a living. Measures of legal immigrant use of welfare programs show robust levels of participation in these programs. The best that can be said of legal immigrants (on average) in this regard is that (according to some conservative measures) they collect welfare at slightly lower rates than the native population.  But this should not be surprising. After all, after a mere five years of residence in the United States, most immigrants with legal permanent resident status have access to the full array of welfare programs including food stamps, Medicaid, CHIP, cash assistance, and more. Some US states (California, for example) offer taxpayer-funded benefits to immigrants without the five-year bar, including Medicaid and food stamps. 

Consequently, the extension of the status of "legal" immigrant is really just an indication that the immigration is more likely to collect taxpayer-funded benefits of one type or another. Yes, illegal immigrants are eligible for some social benefits such as emergency medical care and taxpayer funded childcare.  Legal immigrants, however, are eligible for far more in the way of social benefits. A permanent resident—once declared "legal"—cannot be deported for being willfully unemployed or collecting social benefits.  In other words, an immigrant can obtain and maintain legal status even if he or she is unemployed, on welfare, and a net drain on taxpayers. Note that such a person can be "legal" while self-reliant immigrants with jobs and private economic support can still be arbitrarily labeled "illegal." 

Moreover, there are additional loopholes that allow the regime to declare many immigrants—many of them initially labeled "illegal"—as eligible for greater and more immediate access to taxpayer funded benefits. For example, "[r]efugees, people granted asylum or withholding of deportation/removal, Cuban/Haitian entrants, certain Amerasian immigrants" and other specific groups are exempted from the waiting period.  By definition, everyone in these groups is a legal immigrant, and we see is not at all necessarily the case that legal immigration results in fewer demands on the taxpayers than legal immigrants. 

So, is the term "illegal alien" useful? It's not very useful beyond simply determining the state of that migrant's paperwork and the migrant's relationship with government authorities. When it comes to the private sector and the net economic contribution that person makes, the terminology doesn't tell us much about any specific case. 

A more fruitful question may be to ask how much taxpayers ought to be called upon to fund foreign nationals, legal or otherwise.1 By limiting access to the welfare state for all foreign nationals—not just the "illegal" ones, but also legal permanent residents—immigration policy would move toward a less arbitrary standard that is not quite so easily manipulated by government policymakers. 

  • 1. There are many definitions of "foreign national" in use, and many organizations claim that legal permanent residents are not foreign nationals. Common defintions of "foreign national," include "a person or organization who is not a citizen of the United States, and who is a citizen of a foreign country" or "A non-naturalized citizen of a country." The US Department of Homeland Security defines legal permanent residents as "foreign nationals who have been granted the right to reside permanently in the United States." According to the State Department, a "national" is "a person owing permanent allegiance to a state." WIt is reasonable, therefore, to conclude that a colloquial understanding of the term "foreign national" strongly suggests all non-citizens are best classified as foreign nationals.There are presently approximately 23 million foreign nationals living in the United States. 
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Maculate Disinflation

02/13/2024Jonathan Newman

Stock markets tumbled this morning when the January Consumer Price Index (CPI) data came in hotter than expected. If you are wondering what the connection could be, the answer is that higher-than-expected price inflation means a longer-than-expected wait for the Fed to cut its interest rate target. It’s clear that financial markets are addicted to artificially low interest rates when any hint of a delay in rate cuts pushes stock prices off a ledge. Even news that most would consider good, like quarterly GDP growth and official unemployment rate data staying below 4%, can sour markets because of their implications for monetary policy.

The CPI release shows that “Team Transitory” ran its victory laps before the race was over. Paul Krugman has been declaring victory for over a year, with headlines like these:

  • Goodbye, Inflation: The latest numbers show that it’s yesterday’s problem.
  • The Soft Landing Is Happening: Why the new inflation numbers contain some very good news.
  • Why Did So Many Economists Get Disinflation Wrong?
  • Inflation Is Down, Disinflation Denial Is Soaring
  • None Dare Call It Victory: Has the war on inflation already been won?
  • How (Many) Economists Missed the Big Disinflation: The fault lay not in the models, but in themselves
  • Everything’s Coming Up Soft Landing: Inflation seems to be fading without a recession
  • Wonking Out: From Stagflation to ‘Immaculate Disinflation’

Meanwhile, monthly CPI data hasn’t reached the Fed’s 2 percent target.

Source: U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCSL] and Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average [CPILFESL], retrieved from FRED, Federal Reserve Bank of St. Louis.

Annualized monthly rates over the past few months also show that Krugman’s “Immaculate Disinflation” isn’t materializing.

Source: U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCSL] and Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average [CPILFESL], retrieved from FRED, Federal Reserve Bank of St. Louis.

Krugman was widely ridiculed for using tortured price inflation statistics that remove food, energy, shelter, and used cars to help him make the claim that the economic picture is better than surveys of economic sentiment suggest.

This prompted me to construct the “Anti-Krugman Price Index,” which only includes the items he excludes. When we compare the AKPI to average earnings, we see why he wants to ignore these components.

Source: U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: Food in U.S. City Average [CPIUFDSL], Consumer Price Index for All Urban Consumers: Energy in U.S. City Average [CPIENGSL], Consumer Price Index for All Urban Consumers: Shelter in U.S. City Average [CUSR0000SAH1], Consumer Price Index for All Urban Consumers: Used Cars and Trucks in U.S. City Average [CUSR0000SETA02], and Average Weekly Earnings of All Employees, Total Private [CES0500000011], retrieved from FRED, Federal Reserve Bank of St. Louis.

The prices of these items, as measured by their corresponding CPI components, have risen twice as much as average earnings since 2020.

The moral of the story is that court intellectuals will weave a narrative that supports the State, using whatever (manipulated) statistics will help them tell their tales. Krugman especially wants to tell the story that under Biden’s lucid leadership, the economy is doing great and the government (with help from the Fed) can simply turn the dials to steer the economy toward stability and growth without any negative repercussions.

Of course, this is a farce. Printing money and manipulating interest rates have many consequences, and the full costs are yet to be realized.

Happy Centennial, "Rhapsody in Blue"!

The 1920s in America, as well as much of the West, were characterized by a feeling that anything was possible. In the Roaring ‘20s Americans no longer worried about war, and they had seen the post-war depression of 1920-1921 vanish quickly, thanks to a paucity of government meddling. The Federal Reserve was managing the money supply in what eventually became a fatal disaster but was heralded at the time, and inventions flowed forth from a great release of creative energy that had been pent-up during the war.

With low unemployment Americans were prosperous and mobile as mass-production made cars affordable for the middle class. Women had won the right to vote and were asserting their independence in culture and work, and alcoholic beverages were prohibited giving rise to massive defiance in the form of organized crime and speakeasies. In dance, the fast-kicking Charleston became wildly popular. 

The 1920s was also the Jazz Age. Originating from African American musicians in New Orleans, “jazz” had no agreed-upon definition, though improvisation became one of its defining elements.

As one writer described it,

Jazz represented the Roaring Twenties’ spirit: energetic, modern, and slightly rebellious. Musicians like Louis Armstrong, Duke Ellington, and Bessie Smith became national icons, pushing musical boundaries with improvisation and new rhythms. Jazz clubs, especially in cities like New York and Chicago, became cultural hubs, drawing diverse audiences and facilitating the mingling of different racial and social groups.

The popularity of jazz rendered it an American signature, but the reigning classical orthodoxy considered it low brow. Americans, therefore, were low brow.

This bothered some jazz musicians, and one of them decided to shake-up that prejudice.

Paul Whiteman’s concert

On Friday, January 4, 1924 Ira Gershwin sat reading the morning’s New York Tribune while his younger brother George and a friend were nearby playing a game of pool. Ira noticed an item in the music section headlined “Committee Will Decide ‘What is American Music?’.” As he read on he learned that jazz bandleader Paul Whiteman was planning a concert for Lincoln’s Birthday, February 12 — five weeks away. 

Whiteman’s “An Experiment in Modern Music,” he read, would be judged by four iconic musicians of the day: Sergei Rachmaninoff, Jascha Heifetz, Efrem Zimbalist, and Elma Gluck. How they would know if the “experiment” could be called American music was likely a mystery even to them.

It was the brief article’s last paragraph that made Ira straighten up and take notice:

George Gershwin is at work on a jazz concerto, Irving Berlin is writing a syncopated tone poem and Victor Herbert is working on an American suite.

His brother is at work on a jazz concerto?! In the upcoming days George would be occupied with a musical comedy he had written which was about to open on Broadway, Sweet Little Devil. Where did Whiteman get the idea Gershwin was writing a concerto?

It turned out George had forgotten about his promise to Whiteman during talks back in December. He called the band leader early the next morning to tell him it would be impossible to write a concerto in the time remaining. But Whiteman somehow talked him into it, though Gershwin promised not a concerto but a freer piece such as a rhapsody. Whiteman assured him he only needed to write the piano score; his trusted in-house arranger Ferde Grofé would do the orchestration.

After he had sold his first song in 1916 at age 17 for 50 cents, Gershwin worked as a song plugger and producer of piano rolls for a while. His first commercial success as a composer was the ragtime Rialto Ripples in 1917 followed by a bigger hit Swanee in 1919. With songwriter William Daly he began collaborating on Broadway musicals beginning in 1920. 

Gershwin had been in the habit of jotting down song ideas in what he called his Tune Books. Now, at age 25, he had collected an abundance of musical phrases, and he turned to these to get him started on what would eventually become a sure bet to pack concert halls here and abroad for the next 100 years — Rhapsody in Blue.

Manuscript evidence suggests he only worked on Rhapsody a total of 10 days from January 7, 1924, to the end of rehearsals in February.

Last minute anxiety

Carnegie Hall had been booked for February 12, 1924, and surrounding dates, so Whiteman settled for the less-capacious Aeolian Hall. 

Whiteman was taking a risk for the concert he had planned. On the day of the event, scheduled to begin at 2:45 p.m., he slipped out of the hall to check on the box office, and in his own words:

There I gazed upon a picture that should have imparted new vigor to my wilting confidence. It was snowing, but men and women were fighting to get into the door. . .

Such was the state of my mind by this time that I wondered if I had come to the right entrance. And then I saw Victor Herbert going in. It was the right entrance. . . The next day the ticket office people said they could have sold out the house ten times over.

All very encouraging but by late afternoon Whiteman’s experiment was fading. Applause had been polite for the performances up to that point. Slowly, people began to head for the exits.

Then Gershwin, “a lank and dark young man,” stepped quietly on stage. Settled at the piano he nodded to Whiteman, who gestured to Ross Gorman whose clarinet wail electrified the audience. The hall’s deserters rushed back in.

Later, critics said Rhapsody was flawed, it was too heavy on the piano part and its form was not classically proportioned. But when the final ffz (very loud) chord was struck by Gershwin and orchestra, the audience exploded with applause. According to Whiteman he and the young composer took five curtain calls.

The question “What is American music?” never got answered. 

Today, a who’s who of concert pianists have recorded the Rhapsody, many available on YouTube. 

In late January of this year pianist-composer Ethan Iverson wrote a piece for the NY Times, saying

Thanks to the centennial, you’re likely to come across a lot of “Rhapsody” performances this year — not that the anniversary makes much difference, because that’s always the case.

As conductor Michael Tilson Thomas once said, Gershwin’s music has that elusive quality of making people fall in love with it.

Happy centennial, Rhapsody in Blue!